The commercial lending arm of Goldman Sachs, Goldman Sachs BDC Inc. raised $120 million in an IPO, with shares going for just $20, what marketers consider the lower end of the market range.
Goldman Sachs Group Commercial Lending Arm Shares Fall After IPO
On March 17, the financial giant sold six million shares of Goldman Sachs BDC Inc and it will trade on the New York Stock Exchange with GSBD as its official ticker symbol.
The BDC arm of Goldman Sachs is dedicated to business development and lends to the middle-sized companies in the U.S. Goldman Sachs BDC Inc, which is based in New York generated over $500 million in 2013, just from private placements alone, while Goldman Sachs, the parent company held an estimated 20% of the company’s stock by the end of 2014.
In its March 10 regulatory filing, Goldman Sachs said, “We have a preeminent network of relationships and we are able to provide valuable intellectual, financial and capital to middle-sized borrowers.”
The company further added, “Many borrowers prefer to do business with us and our advised funds as they grow in their life cycle.”
Typically, business development companies pay out a large percentage of their earnings in form of dividends if they invest in smaller companies in the U.S.
Morgan Stanley, Credit Suisse Group AG, Goldman Sachs, Citigroup Inc., Wells Fargo & Co., and the Merrill Lynch unit of Bank of America Corp were the top underwriters.
Goldman Sachs BDC Inc shares will start to trade on the New York Stock Exchange on March 17, with Goldman set to ring the opening bell at the NYSE. The lending unit enjoys a great tax advantage and was established two years ago, to provide high yield loans.
In its aforementioned filings, Goldman said that it is keen on lending to U.S. firms that have no credit ratings and earn between $5 million and $75 million each year.
The IPO comes in the steps of Goldman’s predictions that regulations would arise that had the potential to move activities to non-banks from banks. Researchers at the financial firm also forecasted that non-traditional lending institutions could use up $11 billion out of the $150 billion yearly profits across the banking sector in a couple of years.
Business development companies are governed by various Securities and Exchange Commission regulations. A major requirement is that they maintain a 1:1 equity-debt ratio. These types of companies are particularly favorable given that they have fewer restriction compared to banks, which are governed by strict regulations surrounding leveraged lending. Business development companies do not pay federal taxes.
Robert Dodd, a specialty-financial analyst at Raymond James Financial Inc. said, ‘Due to the changing regulatory framework, banks are less competitive than they were in the past. By establishing a BDC facility, there are some advantages for the bank.”
Policymakers are also considering the possibility of reducing the bureaucracy involved in creating BDCs and therefore allowing them to take on more debt. Brett Palmer, president of the Small Business Investor Alliance said that in the last Congress, time ran out to discuss a bill pertaining to this specific issue. However, there are signs that the bill will be introduced again in the current Congress.
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